The Asian financial crisis persuaded China s leaders to shelve plans, launched in 1994, to liberalize the capital account.

The Temptation of China s Capital Account

Working Capital Fund and Special Account

But China slowed capital account liberalization after the Asian financial crisis ten years ago, so it is possible that America s troubles could make China more cautious.

A. GENERAL FUND, WORKING CAPITAL FUND AND SPECIAL ACCOUNT

Another global financial crisis could disrupt short term capital inflows.

Capital controls enabled China to emerge from the Asian financial crisis of 1997 1998 largely unscathed, even though its financial system was at least as fragile as those of the affected countries. The Asian financial crisis persuaded China s leaders to shelve plans, launched in 1994, to liberalize the capital account.

During the 1990s, capital account liberalization and high capital account volatility greatly increased the need for official liquidity to deal with sudden and large reversals of flows.

Given the evidence that capital account liberalization increases macroeconomic volatility, many developing countries have experimented with capital controls.

A major problem of many recent Fund supported programmes, especially in cases of capital account crisis, has been the lower than expected levels of private financing, resulting in sharper and more abrupt current account adjustment and steep output declines.

Kaduang has posted an eyewitness account of yesterdays happening in capital Yangoon.

It is time to add managing the capital account to this list.

This is why capital account regulations are allowed under IMF rules, and why the attempt to introduce capital account convertibility into the IMF s Articles of Agreement was defeated in 1997.

The Supplementary Reserve Facility, established in 1997, provides larger and more front loaded financing to countries hit by a capital account crisis, at a higher interest rate, than other Fund facilities.

Second, much will depend on how China navigates the transition to a more open capital account. History is littered with financial crises occurring in the wake of precipitous capital account liberalization.

General Fund cash flow (usable cash), including Working Capital Fund and Special Account

More importantly, the crisis highlighted the risks associated with high dependence on foreign capital.

The loss of the capital role provoked an economic and social crisis in Parma.

To climax everything, they canceled our contract on account of the crisis.

But the rise would most likely be offset by capital outflows, as looser capital controls would enable savers to escape the financial crisis.

Moreover, the pattern of accumulating reserves via current account surpluses, net private capital inflows, or both a legacy of the 1997 1998 Asian financial crisis will continue and perhaps become even more pronounced.

That would be very difficult to manage without some form of capital account regulation.

payments a profits and interest c account d of capital e Global balance f

During the crisis, we saw how quickly capital fled from countries previously considered safe bets.

It is hard to argue that the RMB is not undervalued, given China s large and persistent current account and capital account surpluses.

The current account deficit has been almost eliminated, and the banking crisis contained.

China has a two tier system in which the capital account is strictly controlled most other currencies don t distinguish between current and capital accounts.

A country with current account and capital account surpluses and increasing foreign exchange reserves normally sees an excessive money supply and high inflation.

History is littered with financial crises occurring in the wake of precipitous capital account liberalization.

A country that has a balanced current account does not need any additional foreign capital.

With current and capital account surpluses, the renminbi s exchange rate is still under upward pressure.

Ditching the euro might trigger a banking crisis, capital flight, inflation, and perhaps even sovereign default.

First, I told Emma to forget about having an identity crisis and get some identity capital.

Second, much will depend on how China navigates the transition to a more open capital account.

A serious discussion of global capital account regulations would benefit both advanced and emerging market economies.

Progress in institution building is also important for a well sequenced liberalisation of the capital account.

With Europe mired in crisis, capital flows from Tunisia s resource rich Arab neighbors are its best hope.

Monetary policy was undermined by the banking crisis, and any reduction of interest rates to boost economic activities would encourage further flight of capital and stop capital inflows.

But whether renminbi appreciation will work depends on reducing China s net capital inflows and current account surplus.

NEW YORK Capital account regulations have been at the center of global financial debates for two years.

A much better way forward is to rethink seriously the role of cross border capital account regulations.

Doing so will require maintaining some capital account control, while raising interest rates to market clearing levels.

On April 1994, the capital was moved again to its present location on account of political considerations.

Even the International Monetary Fund now recognizes that capital controls may be useful, especially in times of crisis.

Iceland showed that responding to the crisis by imposing capital controls could help small countries manage its impact.